International banks are key to American economic success

When international companies invest in America, build factories, open offices, and hire Americans, we usually think that is a good thing. After all, America is a good place to invest. We have a dynamic market, motivated workers, and a system of laws based on equality and fairness. These are the building blocks that make America the financial center of the world.

International banks are crucial providers of loans, investment, and financial services in America, representing approximately 20 percent of banking assets and one third of all loans to businesses in the United States. International banks make up two-thirds of the primary dealers in our Treasury market, playing a crucial role in how our financial markets function and how our government funds itself. International banks also comprise two of the top three commercial agricultural lenders in America.

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Put simply, international banks promote a vibrant and competitive United States economy and serve as a key source of capital for American homes and businesses. International banks are also an important potential source of stability to our economy. In times of financial stress in the United States, the global operations of international banks may well be healthy and stable. For instance, during the last financial crisis, international banks made investments in, and even acquired, troubled American firms. These actions helped spare taxpayers and saved jobs.

Success in attracting international banks to do business in the United States stems from actions Congress took 40 years ago when it enacted the International Banking Act. Since 1978, Congress directed international banks to be regulated under a nondiscrimination principle of national treatment and competitive equality, whereby they are treated fairly and equally alongside domestic banks. This simple premise, reaffirmed in the Dodd Frank Act, has for decades promoted financial investment in the United States and, significantly, led to a diverse banking sector and deeply liquid markets that fuel American economic growth.

In recent years, international banks have been subjected to an array of capital and other prudential requirements, both in the United States and in their home countries, which has resulted in many overlapping and duplicative rules. The Treasury Department last year criticized these duplicative rules when, in reaffirming the importance of international banks, it highlighted the need for a level playing field through regulation that both considers home country requirements and is based on the risk profile of the United States operations of an international bank.

The Federal Reserve measure of systemic riskiness, the global systemically important bank scoring methodology, indicates that the United States operations of an international bank do not pose a threat to American financial stability. The highest score of any United States intermediate holding company of an international bank is less than half of the threshold at which the Federal Reserve considers a bank to be systemically important. The scores of these intermediate holding companies of international banks are closer to the scores of American regional banks than American global systemically important banks.

Yet, since poorly calibrated rules were issued in recent years, various international banks have reduced their activities in the United States, which has hurt American workers and communities. For instance, some international banks have significantly decreased their capital market activities. Moreover, burdensome requirements here risk spurring other jurisdictions to impose severe requirements on American banks operating abroad, thereby contributing to the balkanization of the global financial system and making it less able to withstand a future crisis.

Today, I hope senators remember the crucial contributions that financial institutions of all sizes and types play in our economy. These contributions merit the preservation of the longstanding principle of competitive equality, which requires careful recalibration and tailoring of enhanced prudential standards. Refinements that promote transparency, risk sensitivity, and empirically sound standards will benefit competitive equality. Fair regulation based on risk will encourage other countries to treat American banks operating abroad fairly. Ultimately, we should not lose sight of the benefits that international banks provide to American consumers, businesses, capital markets, and the stability of our economy.

Keith Noreika served as the former acting United States Comptroller of the Currency and is now a partner with Simpson Thatcher & Bartlett, where he advises domestic and international financial institutions on regulatory and transactional matters. The views expressed here are solely those of the author and do not necessarily reflect those of the firm or its clients.